Frequently-asked questions about mediation in commercial disputes

Mediation is a form of alternative dispute resolution (ADR) that is fast becoming a standard – and possibly even obligatory – part of commercial disputes. Here, we answer some of the most common questions concerning mediation and discuss if it is really the best way to avoid costly court proceedings.

What is mediation?

Mediation is a type of ADR in which parties work together to find a solution to a dispute, without involving the courts. Unlike court proceedings, mediation is voluntary and confidential. It is also conducted on a without prejudice basis, which means that admissions made by a party cannot be used against it in any subsequent court proceedings.

Mediation’s purpose is usually to facilitate discussions between parties and, ultimately, support them in negotiating and agreeing terms that are acceptable to everyone.

How does mediation work?

A mediation involves at least two parties – i.e. the parties in the dispute – and an independent mediator. Legal representatives and counsel may also attend, although this is not necessary.

Prior to undertaking a mediation, the parties will agree on a qualified mediator, a date on which to mediate, and a timetable for the run-up to that date. During this time, they will also prepare and produce a mediation position statement, as well as a mediation bundle containing documents relevant to the dispute. Mediation position statements, which usually set out a party’s position and any legal arguments, will be exchanged between both sides and the mediator. 

The mediation itself can be in-person, remote, or a combination of both. In any case, representatives from each party will sit in separate rooms (or virtual breakout rooms), coming together for joint sessions. These are held in a third room, which is also used by the mediator as they move back and forth.

Unless emotions are running high, most mediations will start with a joint session, during which each party will make an opening statement. The parties will then return to separate rooms, waiting for the mediator to bring an offer or terms of settlement from the other side. There may also be further joint sessions during the day if these are deemed necessary. 

A successful mediation should, ideally, result in settlement terms being agreed and a settlement agreement being signed that same day. However, parties may wish to iron out a few technicalities before signing an agreement. If that is the case, they will likely sign heads of terms on the day of the mediation and finalise the agreement a few days later.

What is the mediator’s role?

A mediator essentially acts as an emissary for both sides, helping to narrow and ultimately bridge the gap between their conflicting positions. They will be impartial and should be capable of understanding the commercial context of the dispute.

Unlike a judge, a mediator cannot make binding decisions, nor can they impose solutions or settlement terms. 

What happens if mediation is unsuccessful?

Not all mediations will result in agreement of settlement terms (although most do). If unsuccessful, a mediation will usually give way to the usual litigation process. Anything discussed during the mediation will remain confidential and cannot prejudice either party’s position.

How much does mediation cost?

The costs associated with mediation largely stem from the mediator’s fees, as well as the fees of any legal representatives involved in the process. It is difficult to give a precise steer as to what the costs will be as they are assessed on a case-by-case basis. The value of the claim is likely to determine the mediator’s fee and a quote will be agreed with the parties before committing to the mediation. The quote will generally be for either a full or half-day’s mediation, plus an hourly rate for any time that exceeds this.

What are the benefits of mediation?

Mediation is becoming increasingly popular and is looked on favourably by the courts. In fact, the Ministry of Justice recently confirmed that mediation will be compulsory for all civil claims valued up to £10,000 by 2024. Those that fail to engage in initial mediation will face strike-out and/ or cost sanctions.

For commercial parties in a dispute, mediation offers numerous benefits:

• It is commercially sensible in terms of costs. Even with the sizeable up-front fees, mediation costs are usually offset by the long-term savings achieved by avoiding the courts.
• Parties have control over the decision. Unlike the litigation process, parties can negotiate a mutually and commercially-beneficial solution that goes beyond a simple judgment in favour of one party over another. A mediation is not binding so there is no requirement for either side to settle.
• Mediation can be successful, even if there are communication issues. A mediator is there to help parties understand one another, which will ultimately increase the likelihood of reaching a good commercial solution. 
• Everything related to the mediation, including correspondence before and during the mediation date, is confidential and without prejudice. This makes it a more attractive option for commercially sensitive or reputationally damaging disputes.
• Mediation agreements can include solutions the courts don’t have the power to impose. This could include offering a new commercial contract with favourable terms as part of a settlement package.
• It is low risk, with little at stake. Even an unsuccessful mediation can be valuable. Should the matter progress to court, the judges will take a favourable view of the parties’ attempts to mediate. Both parties can also use the mediation to narrow the issues in dispute, better understand the strength of the other side’s claim, and test the strength of their own arguments.
• Mediations have a high success rate. According to the Centre for Effective Dispute Resolution’s (CEDR) tenth mediation audit, published in February 2023, 72% of respondents’ cases settled on the day, with a further 20% settling shortly thereafter.

Can mediation be used in any dispute?

Not all disputes lend themselves to mediation. Where there is no realistic prospect of success, for example, a mediation will be a waste of time and money for both sides. It may also be unnecessary if negotiations are already proceeding successfully.

Should the dispute concern a point of law or necessitate an injunction, litigation will be the more suitable option.

Do I have to enter a mediation?

Mediation is highly advantageous to the court system. It increases capacity and reduces mounting pressures on judges. Although not yet mandatory in high-value civil claims, mediation is likely to become so in the future, with the courts already starting to penalise parties that unreasonably refuse to mediate in the first instance.

ADR clauses in commercial contracts are also becoming more widespread and many companies are including in their terms and conditions a requirement to mediate first in the event of a dispute. 

In any case, mediation is a sensible and low risk option that should be prioritised in most dispute resolution strategies – one that will either inform subsequent legal proceedings or, preferably, avoid them altogether.